Oracle Corp. (Nasdaq:ORCL) is aggressively building its position in the cloud-computing arena through strategic acquisitions. After acquiring cloud-based service providers RightNow Technologies in January and Taleo Corp in April this year, Oracle recently announced the acquisition of Eloqua Inc. (Nasdaq:ELOQ) for approximately $871.0 million.

According to Reuters, Eloqua has a strong customer base, which comprises Automatic Data Processing Inc. (Nasdaq:ADP), AON Plc, Dow Jones, Polycom Inc. and National Instruments Corp. The company also has an online sales partnership with Salesforce.com Inc. (NYSE:CRM), one of the major competitors of Oracle in the automated marketing software market. Eloqua earned revenue of $23.8 million in the recently concluded third quarter of 2012.

In August 2012, Eloqua completed its initial public offering ("IPO") that generated net proceeds of approximately $87.7 million. Oracle's offer price of $23.50 per share is double that of Eloqua's IPO price of $11.50 per share and represents a 31% premium to its December 19 closing price of $17.92. Following the announcement, Eloqua share price surged 32.0% to close at $23.66 on December 20, 2012.

According to data from Bloomberg, Oracle's offer price equates to more than 9 times Eloqua's trailing 12 months sales, a premium compared to 6.3 times for RightNow and 7.1 times for Taleo. As Oracle is comparatively a late entrant in the cloud-computing market, we believe that the company is paying a premium to boost its product portfolio in order to catch up with Salesforce and IBM (NYSE:IBM).

According to market research firm Gartner, marketing is one of the four fastest growing areas of enterprise sales applications on the SaaS (software-as-a-service) platform. Gartner projects a robust increase in marketing spending due to improving e-commerce sales, higher adoption of social networks, rapid usage of mobile devices and improving marketing effectiveness.

We believe that higher spending on marketing bodes well for Oracle, as strong demand for Eloqua's revenue performance management application will boost its top-line. Oracle intends to integrate Eloqua into its Oracle Marketing Cloud and it will be an important addition to Oracle's customer experience portfolio.

We expect Oracle to continue pursuing strategic acquisitions of technology start-ups that can be easily synchronized with its product lines. These acquisitions will help Oracle to expand its customer base over the long term. The strategic acquisitions will also help Oracle to reduce competition by eliminating rival products going forward.

However, we believe that competition remains stiff for Oracle, which will limit its growth abilities going forward. Oracle's hardware business continues to decline, putting massive pressure on the software side to perform consistently in order drive to growth. In such a scenario, cut-throat competition and sluggish IT spending will hurt profitability going forward.

We remain Neutral on a long-term basis. Currently, Oracle has a Zacks #3 Rank (Hold).

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